Canadian Conservatives Lost
Their Way, Too

Chip HanlonDelta Global AdvisorsMarch 15, 2007

"It is a paradoxical truth,
that... the soundest way to raise the revenues in the long run
is to cut the tax rates." -- John F. Kennedy

In recent years, investors
have become familiar with Canadian energy trusts, also known
as royalty trusts. Such companies produce from traditional oil
and natural gas fields, typically mature fields that larger companies
consider un-economical. As securities they function much like
our more familiar REITs, paying essentially no tax at the corporate
level if they distribute the bulk of their earnings to shareholders,
which leads to very high dividend yields.

In late 2005, the then-ruling
Liberal party merely aired the notion that it might change the
popular royalty trust structure and Canadian investors-particularly
retirees-went through the roof. In fact, the topic helped bring
down the tenuous ruling coalition and it became one of the key
issues that swept the Conservative party into power soon after.

To highlight: in an October
26, 2005 letter to the National Post, Prime Minister Stephen
Harper, then the leader of the conservative opposition, wrote
of the liberal government:

"So one must ask, why
is the government clamping down on the retirement savings of
seniors and investors? But it gets worse. Instead of immediately
moving to assure markets that income trusts are here to stay,
yada yada yada..."

Why "yada yada yada?"
Because Harper's words turned out to be all hot air. In a political
betrayal beyond even "read my lips," the same conservatives
who rode into power as royalty trust guardians (and who have
repeatedly promised to protect them since) did an about face
on Halloween of last year, closing the door on any future trust
conversions and giving existing trusts just four years to revert
to ordinary corporations.

In an attempt to rush this
change through parliament and get beyond the issue before a possible
national election later in 2007, this proposed change was shrewdly
packaged with tax credits and giveaways to seniors in order to
mute their expected outcry. The Conservatives, a minority ruling
government, also secretly lined up the votes of other parties
prior to making their announcement, one which amounted to a de
facto tax hike. Not surprisingly (except to those in government,
perhaps), money has since poured out of Canada, more than $30
billion in shareholder value has been erased and the Loonie,
as the nation's currency is nicknamed-aptly, it seems at the
moment-has been steadily falling since.

So, why the need to pass any
change at all? While many ill-informed reasons were stated, the
change was driven by one thing: the feared loss of tax revenues.
Conservatives ended up buying into the long-held liberal argument
that the Canadian government was somehow losing money since the
companies were paying no corporate taxes. The numbers, however,
don't bear this out.

Although energy trusts represent
20% of Canada's oil and gas production and just 16% of revenues,
they accounted for...

...the essay above is provided
courtesy of Red County Magazine. The rest of this article can
be read by clicking
here.

Chip Hanlon
is the President of Delta Global Advisors (www.deltaga.com),
an SEC-registered investment advisor in Huntington Beach, CA.
He is also a contributing writer to TheStreet.com. He can be
reached at chanlon@deltaga.com